by Kate McFarland | May 26, 2016 | News
In a piece published in Equites, business writer Joel Anderson analyzes how a UBI might be feasible — “in three acts.”
Anderson begins (in “act one”) by asking why it is desirable to adopt a basic income. In answering this question, he highlights the potential of a UBI to enhance the bargaining power of workers. When people live in poverty, they might feel compelled to take any job — even a terrible, low-paying job — out of necessity. Furthermore, as long as there’s a pool of such impoverished would-be workers, workers who do want to bargain for more than a paltry wage are risk of replacement by someone willing to work for less. This would change drastically under a UBI.
Further bolstering the case for a UBI, Anderson examines the changing nature of the American economy. Due to advancements in robotics and IT, he says,
[W]e’re now living in a world where a large section of society is searching for a role to play without a clear sense that there will be one.
Instead of continuing to subdivide what work still needs actual humans into a series of low-wage, low-skill jobs that few people actually want to do, why not embrace our changing future and try to empower people to find how they can contribute value that’s unique to them? A UBI would hypothetically give every citizen the flexibility to make choices about how they use their time in a society that increasingly doesn’t need them to spend it working.
In his “second act,” Anderson asks how a basic income could be afforded in the United States. (To illustrate, he considers a UBI of $15,600 per adult per year, with an additional $5,000 per dependent.)
He provides a comprehensive look at savings due to elimination of current welfare programs, anticipated reductions in spending on crime and security, and anticipated increases in tax revenue due to economic growth. After this, he admits that the US would still need to raise taxes considerably to fund a UBI — but to a level that is still modest by global standards.
Finally, in the “third act,” Anderson presents empirical evidence that a UBI would work — including a brief summary of results from past basic income pilots.
Now, these studies were all relatively small, so it’s likely a mistake to simply extrapolate out their results, but they do seem to indicate a basic truth: people mostly want to do something with their lives. Overall, when freed from the need to work simply to fulfill basic necessities, most people in these studies tended to still find ways to be productive. Not everyone, to be sure, but a pretty solid majority. In many cases, they pursue things like a better education or job that will greatly increase productivity over the course of their lifetimes.
Reference
Joel Anderson, 10 May 2016, “Money For Nothing and Your Checks for Free: Why the Basic Income Makes More Sense than You Think,” Equites.
Image Credit: badgreeb Records via flickr
by Kate McFarland | May 25, 2016 | News
During the US presidential race, it has become abundantly clear that voters from both ends of the political spectrum are angry about free trade.
In a blog post for EconoMonitor, accomplished economist Ed Dolan argues that protectionism is not the answer to Americans’ worries about trade.
Instead, Dolan recommends two solutions to assist displaced workers while also building work incentives and increasing domestic productivity: universal health insurance and a universal basic income.
Dolan admits that it might seem counterintuitive that work incentives would increase if the government gave people “money for nothing.” He goes on to explain, however, that a UBI would eliminate powerful work disincentives inherent in our current welfare system:
The answer to the paradox lies in a distinction that economists make between two effects of any social safety net program. One is the income effect: If you give people more money, other things being equal, they do have less incentive to work. The other is the substitution effect: If, while giving people money, you also decrease the amount of each added dollar of earned income they get to keep, that also reduces incentives to work. …
Empirical research has repeatedly found that the substitution effect is far stronger than the income effect. Eliminate the tangle of overlapping social programs that give rise to 80 percent effective marginal tax rates for the poor and near poor, and you are sure to get greater work incentives. Those incentives would be especially important for workers displaced by trade who need to relocate and retrain for new jobs.
Read the full article here:
Ed Dolan, “Voters are Angry about Free Trade. What is the Right Policy Response?” EconoMonitor, April 4, 2016.
More extended arguments for basic income can be found in Ed Dolan’s previous work for EconoMonitor, including the multi-part series “The Economic Case for a Universal Basic Income” (January 2014).
Image Credit: AFGE via Wikimedia Commons
by Guest Contributor | May 10, 2016 | Opinion
To tackle spiraling deflationary trends, governments and central banks will soon have no other choice but to resort to printing money and giving it directly to the people.
Article by John Aziz, originally published on azionomics.com under the title “Universal Basic Income Is Inevitable, Unavoidable, and Incoming.”
The last time I saw universal basic income discussed on television, it was laughed away by a Conservative MP as an absurd idea. The government giving away wads of cash responsibility-free to the entire population sounds entirely fantastical in this austerity-bound age, where “we just don’t have the money” is repeated endlessly as a mantra. Money, they say, does not grow on trees. (Only as figures on the screen of a computer).
In this world, universal basic income seems like a rather distant prospect. Yes, there are some proposals, like Finland which is set to start local experiments in 2017 and Switzerland which is holding a referendum on universal basic income next month. I don’t expect the vote to pass. The current political climate is just too patriarchal. We live in a world where free choice is unfashionable. The mass media demonizes the poor as feckless and too lazy and ignorant to make good choices about how to spend their income. Better that the government spend huge chunks of GDP employing bureaucrats to administer tests, to moralize on the virtues of work, and sanction the profligate.
But this world is fast changing, and the more I study the basic facts of economic life in the early 21st century, the more inevitable universal basic income begins to seem.
And no, it’s not because of the robots that are coming to take our jobs, as Erik Brynjolfsson suggests in his excellent The Second Machine Age. While automation is a major economic disruptor that will transform our economy, assuming that robots will dissolve jobs entirely is just buying into the same Lump of Labour fallacy that the Luddites fell for. Automation frees humans from drudgery and opens up the economy to new opportunities. Where once vast swathes of the population toiled in the fields as subsistence farmers, mechanization allowed these people to become industrial workers, and their descendants to become information and creative workers.
As today’s industries are decimated, and as the market price of media falls closer and closer toward zero, new avenues will be opened up. To that end, Canada has seen a surge in startups in recent times. Towns that were once oblivious to people in the country have become a melting pot for fresh Fintech startup ideas. Case in point is this FinFund Media app that aims to simplify getting loans in The Pas for individuals by leveraging the power of local rural communities to send and receive money. Similarly, new industries will be born in a never-ending cycle of creative destruction to keep the economy churning. Yes, perhaps universal basic income will help ease the current transition that we are going through, but the transition is not the reason why universal basic income is inevitable.
Welcome to the world of hyperdeflation
So why is it inevitable? Take a look at Japan, and now the eurozone: economies where consumer price deflation has become an ongoing and entrenched reality. This occurrence has been married to economic stagnation and continued dips into recession. In Japan – which has been in the trap for over two decades – debt levels in the economy have remained high. The debt isn’t being inflated away as it would under a more “normal” rate of growth and inflation. And even in the countries that have avoided outright deflationary spirals, like the UK and the United States, inflation has been very low.
The most major reason, I am coming to believe, is rising efficiency and the growing superabundance of stuff. Cars are becoming more fuel efficient. Homes are becoming more fuel efficient. Vast quantities of solar energy and fracked oil are coming online. China’s growing economy continues to pump out vast quantities of consumer goods. And it’s not just this: people are better educated than ever before, and equipped with incredibly powerful productivity resources like laptops, iPads and smartphones. Information and media has fallen to an essentially free price. If price inflation is a function of the growth of the money supply against growth in the total amount of goods and services produced, then it is very clear why deflation and lowflation have become a problem in the developed world, even with central banks struggling to push out money to reinflate the credit bubble that burst in 2008.
Much, much more is coming down the pipeline. At the core of this As the cost of superabundant and super-accessible solar continues to fall, and as battery efficiencies continue to increase the price of energy for heating, lighting, cooking and transportation (e.g. self-driving electric cars, delivery trucks, and ultimately planes) is being slowly but powerfully pushed toward zero. Heck, if the cost of renewables continue to fall, and advances in AI and automation continue, in thirty or forty years most housework and yardwork will be renewables-powered, and done by robot. Water crises can be alleviated by solar-powered desalination, and resource pressures by solar-powered robot miners.
And just as computers and the internet have made huge quantities of media (such as this blog) free for users, 3-D printers and disassemblers will push the production of stuff much closer to free. People will simply be able to download blueprints from the internet, put their trash into a disassembler and print out new items. Obviously, this won’t work anytime soon for complex objects like smartphones, but every technology company in the world is hustling and grinding for more efficiency in their manufacturing processes. Not to mention that as more and more stuff is manufactured, and as we become more environmentally conscious and efficient at recycling, this huge global stockpile of stuff acts as another deflationary pressure.
These deflationary pressures will gradually seep into services as more and more processes become automated and powered by efficiency increasing machines, drones and robots. This will gradually come to encompass the old inflationary bugbears of medical care, educational costs and construction and maintenance costs. Of course, I don’t expect this dislocation to result in permanent incurable unemployment. People will find stuff to do, and new fields will open up, many of which we are yet to imagine. But the price trend is clear to me: lots and lots of lowflation and deflation. This, ultimately, is at the heart of capitalism. The race for efficiency. The race to do more with less (including less productivity). The race for the lowest costs.
I’ve written about this before. I jokingly called it “hyperdeflation.”
Global Japanization
And the obvious outcome, at the very least, is global Japan. This, of course, is not a complete disaster. Japan remains a relatively rich and stable country, even after twenty years of deflation. But Japan’s high level of debt – and particularly government debt – does pose a major concern. Yes, as a sovereign currency issuer borrowing in its own currency the Japanese government runs no risk of actual default. But slow growth and deflation are stagnationary. And without growth and inflation, the government will have to raise taxes to cover the deficit, spiking the punchbowl and continuing the cycle of debt deflation. And of course, all of the Bank of Japan’s attempts at reigniting inflation and inflating away that debt through complicated monetary operations in financial markets have up until now proven pretty ineffectual.
This is where some form of universal basic income comes in: ultimately, the most direct stimulus for lifting inflation and triggering productive economic activity is putting cash in the people’s hands. What I am suggesting is nothing less than printing money and giving it away to people – as opposed to trying to push it out through the complicated and convoluted transmission mechanism of financial sector lending. This will ultimately become governments’ major backstop against debt deflation, as well as the temporary joblessness and economic inequality created by technological acceleration. Everything else, thus far, has been pushing on a string. And the deflationary pressure is only going to become stronger as efficiency rises and rises.
Throw enough newly-created money into the economy, inject inflation, and nominal tax revenues can rise to cover the debt load. Similarly, if inflation gets too high, cut back on the money-creation or take money out of circulation and bring inflation into check, just as central banks have done for the last century.
The biggest obstacle to this, in my view, is the interests of those with lots of money, who like deflation because it increases their purchasing power. But in the end, rich people aren’t just sitting on hoards of cash. Most of them do have businesses that would benefit from their clients having higher incomes so as to increase spending, and thus their incomes. Indeed, in a debt-deflationary spiral with default cascades, many of these rentiers would face the same ruin as their clients, as their clients default on their obligations.
And yes, I know that there are legal obstacles to fully-blown ‘helicopter money‘, chiefly the notion of central bank independence. But I am an advocate of central bank independence, for a variety of reasons. Indeed, I don’t think that universal basic income should be a function of fiscal spending at all, not least because I think that dispassionate and economically literate central bankers tend to be better managers of monetary expansion and contraction than politically motivated – and generally less economically literate – politicians. So everything I am describing can and should be envisioned as a function of monetary policy. Indeed, what I am advocating for is a new set of core monetary policy tools for the 21st century.
by Guest Contributor | Feb 15, 2016 | Opinion
Funding basic income through taxation is costly. At the same time, low consumer demand is a major worry. The European Central Bank could kill two birds with one stone by giving money directly to citizens.
Guest post by Teemu Muhonen, originally posted on taloussanomat.fi
Translation by Petri Flander
Finnish social welfare agency KELA’s basic income experiment has got plenty of attention in Finland and elsewhere. This is not surprising: in recent years various proposals for a basic income have been submitted by a growing number of scientists, politicians and non-governmental organizations in several countries.
According to a study by the Municipal Development Foundation, 51 percent of the Finnish population supports basic income. Last year, even greater support was found on surveys in France and the Spanish region of Catalonia.
The popularity of unconditional basic income can be explained by the fact that it can be argued from various standpoints: the left is attracted to the idea of eliminating poverty and making citizens freer; the right wants to simply welfare benefits, and encourage people to get out of benefits and take up whatever work is available.
There are problems with basic income models that still need attention. The most common of which was brought up last week In an interview on the Finnish public broadcaster Yle, history professor Juha Siltala brought up one of the most common objections: “We should really consider a basic income that you can really live on. But who pays it then?”
When KELA hinted that they might pay up to 800 euros per month, unconditional and tax-free, to participants in their basic income pilot, Canadian professor James Milligan dismissed the idea as “typical fiscal nonsense.” According to Milligan, if the amount was given to the whole population, it would require doubling the Finnish tax rate.
But what if a universal basic income is funded by other means, in addition to taxation?
The ECB to the rescue
In recent years, the European Central Bank (ECB) has tried to support the eurozone’s lagging inflation through “quantitative easing” (QE), a measure used by other central banks as well. The ECB has been buying securities from institutional investors such as banks, using large amounts of fresh money.
So far, national economies have not responded as hoped: despite the increase in the value of securities, consumer prices have stagnated.
Last year the leader of the British Labour Party Jeremy Corbyn promoted the idea of “People’s QE” in which the Bank of England would channel money directly to citizens, not banks.
The proposal received wide support, and many people believe the ECB should follow suit. Even former IMF chief economist Olivier Blanchard praised the idea.
The expression that Corbyn used is misleading, however, because in his proposal the money is not channeled directly to the public, but to government, which then uses it to stimulate the economy through infrastructure projects and other measures.
Another model was suggested by a group of 19 economists, who signed a letter published in the Financial Times (FT) in March last year. They proposed that the money should be given directly to citizens of the eurozone countries. The idea was to use ECB money to give 175 euros per month to each citizen for 19 months.
Economist Milton Friedman once called this kind of payments “helicopter money”: it is as if the money is just thrown at people from the sky, with no strings attached. Effectively, what the FT letter proposed was a eurozone-wide unconditional basic income paid by the ECB.
One problem with helicopter money is inflation
If the ECB funds infrastructure investment and fiscal policy, it strengthens the position of states substantially. The impact of a pan-European basic income would be the opposite. It would transfer a substantial part of social security funding from states to the ECB. In addition, allocation of money would be determined by citizens, not governments.
The FT letter did not call for a permanent and comprehensive basic income. After all, 175 euros per month is a significant sum in the poorest countries of Europe, but not much at all in countries like Finland.
There are other problems. If the ECB pays a higher basic income, rising demand could lead to massive inflation, unless production of goods increased at the same pace as demand. ECB’s quantitative easing has inflated equity prices for a long time, but sharp increases in the prices of real goods are generally considered more harmful to the economy.
In addition, direct monetary payments to states and citizens would be incompatible with the EU treaties and further limit ECB’s independence.
Despite these problems, a pan-European basic income would have a distinct advantage when compared to a national basic income. A national basic income in countries that attract most migrants would make them an even more popular destination. A pan-European payment would equalize the differences between countries.
Two birds with one stone?
One model discussed by basic income activists would entail that the ECB pays the same amount to all European citizens. The countries with higher living expenses would top up their citizens’ basic income from their national treasury, or from the common EU budget.
Such an arrangement may sound utopian, as it would require a major revision of existing national social security frameworks, and probably a reform of the entire financial system.
But the reality is that the challenges faced by the current welfare arrangements and the economic system are reaching a crisis point. Many jobs have been shredded, and, as technology advances, returns from labor and tax revenues no longer increase as labor productivity rises.
Still, we need money to sustain consumer demand and fund social security. A pan-European basic income financed by the ECB could solve both problems. There is no doubt that we will see more of such discussions in the public sphere in the near future.
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Photo Credit CC European Central Bank
by Will Wachtmeister | Jan 15, 2016 | Opinion
Malcolm Torry, 101 Reasons for a Citizen’s Income, Policy Press, 2015, xvi + 120pp.
Finding 101 reasons in favour of a Citizen’s Income and then condensing them into a lucid, concise book is probably a lot harder than Malcolm Torry has made it look in this readable and compact collection. 101 Reasons for a Citizen’s Income is a book packed with easy-to-grasp arguments written with clarity from an elegantly simple, practical point of view.
In a way, this is the type of book you would hope for from the director of the UK’s Citizen’s Income Trust, a London-based organisation that promotes debate on the desirability and feasibility of a basic Income, and a BIEN affiliate. Torry keeps it mercifully short – just 120 small pages in total – which is clearly a good way of attracting new, curious readers. Showcasing a complete command of the finer points of the UK’s benefits system, the book’s approach also takes care to appeal to people of diverse political convictions. As a result, this is an excellent introduction for the great number of people who have never even heard of Citizen’s Income, and especially for those newcomers who are already interested in UK social policy.
Torry clearly has the sort of wide repertoire of arguments and skilful presentation that you would expect from someone who is both the current director of the UK Citizen’s Income Trust and an academic at the London School of Economics. Perhaps more tantalizingly for more seasoned Citizen’s Income fans, the author has also experienced the byzantine and counterproductive deadweight of UK social policy from what might have been the best (or worst) seat in the house, the Benefits Office in Brixton in the late seventies.
About this (and other matters) Torry shows a mature restraint, and the book is a far cry from the ranting and raving that this type of professional experience would have induced in other human beings (myself included). It is actually when Torry looks back on his personal experience that he serves up some of the book’s choicest nuggets. At one point he states, as a matter of blunt fact, that whilst working at the Brixton Supplementary Benefit Office “the claimants didn’t understand the regulations, and neither did we.” Deadpan aperçus and reminiscences add a little human interest and colour, and try not being moved – or get mad – by an officer who mutters over his casework “a man leaving, another coming, and then another – and with which of the two is she cohabiting, and who is the lodger?”
Citizen’s Income Trust director Malcolm Torry showcases a complete command of UK social policy (picture: Citizen’s Income Trust)
Otherwise, this is mainly a patient demolition of every defence that could conceivably be mounted of the current UK benefit system. Torry confidently shows that even if the UK system is given the benefit of the doubt at every step, there ultimately can be no justification for a bureaucratic machine that unnecessarily traps – and then horribly stigmatizes – people in poverty and unemployment. He also demonstrates clearly why a Citizen’s Income could solve the overwhelming majority of problems with the current system – especially the perverse work disincentives of means-tested benefits which, contrary to their trumpeted aim, penalise people in many different ways for finding and taking paid work. Presenting Citizen’s Income as the obvious alternative to the UK’s hopelessly unfair and ineffective benefits system is the book’s main point, and Torry makes it with brilliant lucidity and concision.
Elsewhere, Torry also pulls off the feat of invoking Kant’s categorical imperative and Rawls’ veil of ignorance without it seeming forced, weird or pretentious. Personally, I am grateful that the book manages to explain, where others including UK ministers have failed, the UK government’s Universal Credit reform in just a few sentences (spoiler alert: the Universal Credit is “neither universal, nor a credit”). Throughout, British party-political traditions and the sausage factory of Westminster policymaking are very well summarized – despite the book by its nature having little space available for context – as are the ways Citizen’s Income would fit into the wider political picture.
An added bonus is that Torry – bravely but necessarily – at certain points ventures into the uncomfortable tribulations around the resurgence of aggressive European nationalisms and immigration problems. He does so by arguing for the necessity of the social cohesion and the new sense of citizenship that a Citizen’s Income would generate. This is an argument urgently worth debating more extensively, given how much is now at stake in contemporary Europe.
The basic income movement is already a broad church, and a very diverse set of people need to continue to come on board if the policy is to become reality. One of the book’s great strengths is that it is designed to appeal to a wide range of people. From this point of view, it is interesting – and, in my view, somewhat problematic – that the book takes a scattered approach to the topic of innovation; surely, innovation is almost per definition something that everyone finds at least in principle desirable.
Rather than selecting as one of the 101 Reasons something along the lines of “A Citizen’s Income would set free innovation for the common good”, the book mentions innovation in several important but different ways. It offers crucial but somewhat isolated statements like “New software companies have the flexibility to innovate in ways in which the well-established companies cannot”, which is included in the section called “A Citizen’s Income would encourage new enterprise”. It also puts forward an in my view absolutely crucial – but again too isolated – observation that corporations disproportionately reap the rewards of innovation without reinvesting the proceeds: “The gap between wages and the proceeds of productivity is increasing. Less of the proceeds from production is now recycled back into industry via wages and consumption”. Elsewhere, Torry describes the world as having “economies in which innovation and automation are the norms” and being in need of Citizen’s Income to manage the upheaval.
Yet it is in the realm of lack of innovation, in the section called “Basic Income would break a logjam”, that we find what I think is the book’s most memorable passage. Torry describes how the world has today reached one of its periodic crises and is crying out for breakthrough innovation: “technology lying idle, human creativity frustrated, wealth flowing from poor to rich, and finite resources uncontrollably exploited … we are still waiting for the next new key concept. A Citizen’s Income might be just what is required.” In the same section, he describes the “key concept”: the breakthrough that in one fell swoop greatly boosts the well-being of every current and future human being. This is so because a key concept “enable(s) new ideas and new technology to create new kinds of wealth” and history shows how they have “freed the economy from stagnation and have stimulated new creative development, which has then itself stagnated until the next new key concept arrives.”
These are powerful sentences describing something that brings to mind a creative-destruction cycle of innovation in which the cycle is about to be put back into the ascendancy with the key concept of Citizen’s Income. But what is most interesting is that Torry neatly captures the constellations of historical periods in which these new key concepts are launched: “New developments that have set life’s evolution, scientific progress, or the economy free, have usually been prefigured by developments bearing some but not all of their characteristics; they have been symptoms of change as well as its cause; they have created revolutions with immense social implications; and in science and the economy they have had passionate advocates and equally passionate detractors – and, once in place, people have wondered why it all took so long.” In fact, this book already leaves the reader wondering why it’s all taking so long.
